When financial advisors or brokers act negligently, they can be held liable for the losses suffered by their clients. Additionally, investors may be able to sue the firms where the financial advisors were registered to recover their losses.
When Financial Advisor Negligence Occurs
Although financial advisors are required to perform their duties with their clients’ best interests in mind, investors in Chicago continue to suffer losses caused by fraud, Ponzi schemes, unsuitable investment recommendations, and other forms of broker misconduct.
There are several types of misconduct that can be classified as financial advisor negligence. When an advisor does any of the following, he or she may be guilty of professional negligence.
- Has undisclosed conflicting financial interests
- Fails to warn investors about the risks of investments
- Fails to properly evaluate and account for the client’s financial position, specific needs, and goals
- Performs excessive trades to generate commissions
- Fails to diversify a client’s portfolio
- Misrepresents the facts regarding an investment
Advisors are expected to adhere to the securities industry standards. Investors claim more than $2 million in losses caused by broker misconduct in a typical year. If an individual believes that negligent practices contributed to financial losses and damages in betrayal of his or her trust, he or she may be able to file a FINRA arbitration claim or a civil lawsuit. Arbitration is often required to resolve disputes between financial advisors and clients in the financial industry. These cases are typically filed through the Financial Industry Regulatory Authority (FINRA). FINRA handles about 5,000 cases involving financial advisor misconduct every year.
What’s Needed to File a Professional Malpractice Claim?
Merely suffering financial loss as a result of poor investments isn’t enough to prove that the advisor was negligent. To recover compensation in a case involving professional malpractice, proof of fraud or the advisor’s negligence is required. Although most fraud cases are easy to spot, many types of negligence, like overconcentration, churning, or misrepresentation may be more difficult to identify. When considering filing a claim against a financial advisor to recover losses, investors should save copies of all correspondence, document conversations, and keep track of financial losses, suspicious trades, and other indicators that their advisor may not be acting in their best interests.